The National Animal Identification System and

Country-of-Origin Labeling:How are They Related?

Prepared by:

Wendy J.UmbergerAssistant Professor and Extension Economist

Department of Agricultural and Resource EconomicsColorado State University

Email: wendy.umberger@colostate.edu

Western Center for Risk Management Education

Western Extension Marketing Committee

• Background of country-of-origin labeling provision– What is COOL– What are the controversies related to COOL?– Estimates of Costs and Benefits

• Issues related to verification of COOL

• COOL versus the National Animal ID System (NAIS)

Presentation Overview

What is Mandatory COOL?

• Title of the 2002 Farm Bill • Retailer shall inform consumers at the final

point of sale of the country of origin of covered commodities.

• Only animals born, raised and slaughtered/processed qualify for “Product of U.S.A” label

• Exemption for food service • Secretary of Agriculture can not mandate a

national identification system to verify country-of-origin

Proponents’ Reasoning Behind COOL

• Consumers’ “right to know”

• Food safety - U.S. food supply is “safer”

• Protection of the U.S. market

• Increase demand for U.S. products

• Voluntary labeling will not work– Mandatory labeling program is the only way to get

all segments of the food chain coordinated• Ex. Nutritional labeling

• Necessary after BSE incidents in North America

The Controversy: COOL Law Exemptions?

1. Ingredients In Processed Food Products

2. Poultry and Dairy• No Chicken, Turkey, Eggs, Milk

3. Food Service Establishments• Restaurants, Cafeterias

4. Retailers With Less Than $230,000/Year In Fruit & Vegetable Sales

• Butcher Shops, Fish Markets, Small Grocers

Why are some meat products exempt if “consumers have the right to know”???

The Controversy: Labeling of Country-of-Origin?

• U.S. Origin…Meat Must Be Exclusively From Animals

1. Born, Raised, and Slaughtered (Processed) In U.S.

Also includes beef from animals born and raised in Alaska or Hawaii (transported for no more than 60 days through Canada to the U.S. for slaughter)

What about feeder animals from Canada or Mexico that are finished in U.S.?

“Mixed Origin” and “Blended Origin” Meat Labeling

• Mixed Origin = Products with an origin that includes production steps (e.g. born, raised, slaughtered) that occurred in more than one country, including the U.S.– Ex. “Product of Canada, Raised and Slaughtered

in United States”

• Blended = different products of different origins that are combined for retail sales with no material change – Ex. Ground beef – “Product of Australia; Product

of Mexico, Raised and Slaughtered in U.S.A.; Product of U.S.A.;”

The Controversy: Necessary Records and Verification

• USDA didn’t create an “unknown origin” label • Self-Certification is not sufficient• Retailers must label covered commodities

– Must keep Point of Sale records for 7 days– Must keep records of origin for 2 years

• Suppliers must provide information about country of origin– Producers, handlers, processors, packers, importers

• Verifiable (auditable records)– Suppliers must maintain records– Affidavits may be used to certify origin and existence

of records

What Are the Costs?1. Cost of Preserving the Identity of Animal (Covered Commodity)2. Cost of Labeling the

Products3. Compliance Costs4. Unexpected Industry

Costs Structural changes Domestic or export

demand changes

Cost Estimates: USDA-AMS

• First Year Cost Estimates (Millions of Dollars)

Beef Pork Lamb

Producers 368 150 15

Processors 538 368 7

Retailers 780 155 9

Total 1,686 673 32

8 Billion lbs. Sold @ 10cents/lb from 35 mil

cattle$805$23Retail Dist. & Store

29 Mil HdSteer/Heifers

6 Mil HdCows/Bulls$435-522 $15-18Packer / Processor

$1,571-1,716

$109-167

$198

Segment Cost

(Million $)

$47-$52

$3.75-5.75

$4.88

$/Head

Total

29 Mil. Head SoldFeedlots

38 Mil Hdcalf crop

2.5 Mil HdImportsCow-calf Producers & Backgrounders

Calculation

Process

8 Billion lbs. Sold @ 10cents/lb from 35 mil

cattle$805$23Retail Dist. & Store

29 Mil HdSteer/Heifers

6 Mil HdCows/Bulls$435-522 $15-18Packer / Processor

$1,571-1,716

$109-167

$198

Segment Cost

(Million $)

$47-$52

$3.75-5.75

$4.88

$/Head

Total

29 Mil. Head SoldFeedlots

38 Mil Hdcalf crop

2.5 Mil HdImportsCow-calf Producers & Backgrounders

Calculation

Process

Cost Estimates: Sparks / CBW

Source: Andersen. R.S. and S. Kay. “COOL Cost Assessment.” Published by the Sparks/CBW COOL Consortium. April 2003. http://www.ams.usda.gov/cool/comments/cool1041.pdf.

Cost Estimates Across Livestock Industry Sectors• Beef

– $47-52/head

– ~$0.10/pound

• Pork– $3.25-$10.25/head

– ~$0.075/pound

• Fish and Seafood– $0.05 to $0.075/pound

Source: Andersen. R.S. and S. Kay. “COOL Cost Assessment.” Published by the Sparks/CBW COOL Consortium. April 2003. http://www.ams.usda.gov/cool/comments/cool1041.pdf.

Potential Benefits of COOL?• Mandatory COOL may be an Appropriate

Policy Tool if (Golan et al, 2000):– Asymmetric information exists– Disclosure of possible negative quality

attributes does not exceed the benefits– COOL increases demand for product

Increased Demand?• Market Share• Higher Price

Will Consumers Pay For Country Of Origin Information?

Consumer Studies Examining Possible Market Impact of COOL:

1. 2002 Colorado Supermarket Study:• Loureiro and Umberger. “Estimating Consumer

Willingness to Pay for Country-of-Origin Labeling.” Journal of Agricultural and Resource Economics. 28(2)(August 2003):287-301.

2. 2002 Chicago, IL & Denver, CO Consumer Auction Study:

• Umberger et al. “Country-of-Origin Labeling of Beef Products: U.S. Consumers’ Perceptions.” Journal of Food Distribution Research. 34(3)(November 2003b): 103-116.

3. 2003 Continental U.S. Consumer Study:• Loureiro and Umberger. “Assessing Preferences for

Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

2002 Colorado Supermarket Study:Loureiro and Umberger. “Estimating Consumer Willingness to

Pay for Country-of-Origin Labeling.” Journal of Agricultural and Resource Economics. 28(2)(August 2003):287-301.

• 243 Consumers surveyed in supermarkets along the Front Range of Colorado

• Consumers Very Receptive to COOL

• “Mandatory COOL Program”– $183.77/year

– $3.53/week

• “U.S. Certified Steak” = 38% Premium for label

• “U.S. Certified Hamburger”= 58% Premium for label

2002 Chicago, IL & Denver, Colorado Consumer Study:

Umberger et al. “Country-of-Origin Labeling of Beef Products: U.S. Consumers’ Perceptions.” Journal of Food Distribution Research. 34(3)

(November 2003b): 103-116.

• 273 Consumers in Denver and Chicago

• Surveyed on WTP for COOL Hamburger and Steak

• Experimental Process- paid $50 to participate

• Bid on “USA Guaranteed: Born and Raised in the U.S.” Labeled & Unlabeled Steak

Consumer Research on COOL: Important Food Characteristics

Colorado Front Range Study:Extremely to Very Desirable1. Fresh2. Food Safety Inspection3. High Quality4. Lean5. Visual PresentationVery to Somewhat Desirable7. Source Assurance9. Beef Raised in your region of

the country

Chicago, IL & Denver, CO Study:Extremely to Very Desirable1. Fresh2. Food Safety Inspection3. Color4. Price 5. LeannessVery to Somewhat Desirable

9. COOL

11. Source Assurance

13. Beef Raised in your region of the country

Consumers’ Rationale for Preferring COOL: (75 % Preferred Labeled, 22% Indifferent)

• Safety and Health of Meat, 45%– U.S. better regulations and standards– Mad Cow Disease

• More Information (Awareness of conditions, Identify meat if Outbreak Occurs), 32%

• Support Producers 21%• Location (Prefer from certain countries, Learn

about importing countries), 12.5%• Quality of Meat Higher in U.S., 11%• Freshness of Meat Closer to Home, 4.5%

Source: Umberger et al. “Country-of-Origin Labeling of Beef Products: U.S. Consumers’ Perceptions.” Journal of Food Distribution Research. 34(3)(November 2003b): 103-116.

2002 Chicago, IL & Denver, CO Study:Umberger et al. “Country-of-Origin Labeling of Beef Products: U.S.

Consumers’ Perceptions.” Journal of Food Distribution Research. 34(3)(November 2003b): 103-116.

• “COOL Steak” – 73% Consumers were Willing to Pay Premium

– 11% Premium for label

• “COOL Hamburger”– 72% Consumers were Willing to Pay Premium

– 24% Premium for label

• “U.S. Guaranteed Steak” versus Unlabeled Steak– 69% Consumers were Willing to Pay Premium

– 19% Premium for labeled steak

Are Consumers Willing-to-Pay for their Taste Preference?: Canadian vs. US

$5.20

$3.59

$2.07

$5.20

$0.00

$2.07

$3.17

$1.61$2.03

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Domestic Preferring Canadian Preferring Indifferent

Ave

rage

Bid

($/

lb)

Domestic BidCanadian BidDifference

N = 10645%

N = 7834%

N = 4921%

Umberger, W.J., D.M. Feuz, C.R. Calkins, B.M. Sitz. “Consumers’ Preferences and Willingness-to-Pay for Beef Originating from the U.S., Canada, and Australia.” Paper Presented at the 2003 WAEA Annual Meetings.

Are Consumers Willing-to-Pay for their Taste Preference?: Australian vs. US

$5.04

$2.74

$1.18

$4.82

$0.00

$1.18

$2.45$2.08

$2.59

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Domestic Preferring Australian Preferring Indifferent

Ave

rage

Bid

($/

lb)

Domestic Bid

Australian Bid

DifferenceN = 13960%

N = 4017%

N = 5423%

Umberger, W.J., D.M. Feuz, C.R. Calkins, B.M. Sitz. “Consumers’ Preferences and Willingness-to-Pay for Beef Originating from the U.S., Canada, and Australia.” Paper Presented at the 2003 WAEA Annual Meetings.

2003 Continental U.S. Consumer Study:Loureiro and Umberger. “Assessing Preferences for Country-of-Origin

Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

• Mail survey sent during Spring & early Summer 2003• Representative sample of 5000 households in the

continental U.S., 673 respondents• Perceptions of safety of meat, agency for certifying

origin, and fairest mechanism to pay for costs of COOL

• Would you be WTP for “Certified U.S.” beef, pork, and poultry?

• Compare value of COOL, source-verified, tenderness, food safety inspected

• Socio-demographics representative of U.S. population

3.17 3.10 3.032.62

2.13

3.724.23

0.000.501.001.502.002.503.003.504.004.505.00

UnitedStates

Canada Australia NewZealand

DenmarkArgentina Mexico

Country of Origin

Ave

rage

Ran

king

(1-

5)Perceived Safety of Meat Products from

Exporting Countries

Source: Loureiro and Umberger. “Assessing Preferences for Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

Who Should Certify COOL?

Government USDA

Inspection Service

63%

Third-Party Independent

Certifiers22%

Local Producers

13%

Other Agencies

2%

Source: Loureiro and Umberger. “Assessing Preferences for Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

Fairest Mechanism to Pay for COOL?

Higher Income Tax

2%Fees Applied to Producers

12%

Higher Meat Prices40%

Use of Existing

Government Budget40%

Other (Import tariffs)

6%

Source: Loureiro and Umberger. “Assessing Preferences for Country-of-Origin Labeled Products.” Journal of Agricultural and Applied Economics. Forthcoming April 2005.

Other Issues Related to Verification of Country of Origin

• Concerns regarding how COOL can be implemented in an auditable system since a mandatory animal ID system can not be created to maintain an animals origin information

• Without individual ID, source verification becomes difficult and potentially requires more costly segregation

• Market may discount animals sold by producers who aren’t able to provide specific source documentation information

Other Issues and Remaining Questions Related to COOL

• Will COOL increase beef demand?– Unlikely due to supply vs. demand issue

• Costs versus Premium estimates?– Chicken and pork highest, but likely the least costly to label

with country-of-origin

• Appears consumers have some misconceptions when asked directly if they are WTP for COOL– COOL is NOT TRACEABILITY

– Relative value of origin-label versus other meat attributes

• Competitiveness of U.S. versus major importers?

• Animal ID makes COOL easier, but they are 2 separate issues

Why Individual Animal ID?• Live animal traceability• Disease surveillance• Document origin • Homeland security

– Bio-security

• Food safety assurance• Reduce the financial and social impacts of animal

health incidents • Market Access• Value-added• Opportunities for Genetic and Product improvement

Why NAIS: To Maintain Market Access!

Within the U.S. and for Export MarketsCountries with national ID

– Europe, Australia, Canada, Japan

• Countries implementing ID– Brazil, Argentina, Uruguay, Mexico

US Beef Export Market• About 10% of production• Japan 32%

Mexico 26%S Korea 24%Canada 10%30 other 8%

• High quality beef• Variety meats and hides (70% of tongues are

exported)

• Drop of 9% in demand would cause price to drop by 15%

82%

John Hayes, Senior Director of U.S. supply for McDonalds (CNNMoney 2 July 2004)

• "We do have a captive supply of poultry. The animal ID program for us currently is most focused on cattle," he said.

• "We'll continue over the next few years to increase the amount of traceable animal ID products that we can buy, and at some point in the not-too-distant future we'll draw a line in the sand and say that after a certain date, all of our animal products will be from animals that are under an animal ID program," Hayes said.

What Can Animal ID Do For Producers? Help you maintain improved records on

purchased cattle by source i.e. order, buyer, market, producer

Manage cattle while on your operation

– health, performance Added value at marketing

– Sort off poor performers– BQA certified– Process-verified– Fit various alliance/premium programs

Cost Estimates of ID Will Vary Depending on the Method and Size of Operation

Common Method Estimated Cost/Head

EID Dangle Tags/Buttons $1.85 to $4.00

Microchips NA

Boluses $3.65 to > $4.00

Retinal Imaging $5.00 to $10.00

Information available at: http://www.beefstockerusa.org/rfid/

TotalPer

HeadUseful

Life Salvage

ValueAnnual

CostTotal

Per Head

Electronic tag --- $2.25 --- --- $585 $585 $2.34 Tags for cows (one-time purchase) --- $2.25 5 0 $141 $141 $0.56

Wand/stick reader $400 3 0 $155 $155 $0.62

Laptop computer $800 3 200 $249 $124 $0.50

Computer software $700 5 0 $175 $175 $0.70

Internet access $480 --- --- $499 $125 $0.50 Subscriptions/upgrade $250 --- --- $260 $260 $1.04 Labor $500 --- --- $520 $520 $2.08 Total annual cost for this example $2,086 $8.34

Software / web-based analysis and storage

Other

eID Transponder (tag)

Electronic reader

Data accumulator

Initial cost, RFID Cost

Kevin Dhuyvetter and Dale Blasi: Web-based spreadsheet to calculate RFID costs. www.beefstockerusa.org

Estimated Costs of an RFID System(Example is based on 250 Head at 8% Interest Cost)

Total Annual Cost of an RFID System

0

5

10

15

20

25

30

63 125 188 250 625 938 1250

Herd Size (Number of Head)

Cos

t/Hea

d ($

/hea

d)ID Costs Decline with Herd Size

Kevin Dhuyvetter and Dale Blasi: Web-based spreadsheet to calculate RFID costs. www.beefstockerusa.org

Uncertainties Associated with Mandatory Animal ID

• Costs of system? – $100 million annually to maintain

• Ability to maintain tags throughout production?

• What happens once the hide is gone?• Sharing of the costs vs. benefits in the food

supply chain?• Liability issues?

– Producers no longer invisible participants in the marketing channel

• Change in market structure?

Public vs. Private Needs and UsesThird Party

Database

Potential Industry Use

Examples: 1. Birth Records 2. Health Records 3. Genetic Information 4. Carcass Data

USDA National Database

USDA Required 1. Animal ID number 2. Previous premises

number 3. Current premises

number 4. Dates and times of

transfer

Summary• The Mandatory COOL Program provides

Neither traceability nor individual animal ID• THUS, Neither COOL nor the NAIS is a food

safety program• However, the NAIS substantially increase the

U.S. government’s ability to respond to animal health and disease outbreaks– Ensuring the safety of animal and meat product

that could enter the food supply chain

• Consumers value both COOL and Traceability, but based on consumer research what they appear to really want is traceability

Summary Continued • A U.S. Animal ID system is inevitable, but the

future of mandatory COOL is less certain• In 2004, Public Law 109-199 was signed into

law, postponing implementation of the mandatory COOL program for all commodities except wild and farm-raised fish and shellfish until 9/30/2006

• COOL will probably continue to be an issue• A NAIS will likely be implemented in a

“technology neutral” manner• Some level of animal ID will be especially

important to maintain and re-establish access to export markets

Conclusions

Consumers’ needs and wants should play a dominant role in food production.

However, the needs of each member of the food system must also be met for the system to exist and to function efficiently.